The ecological insurance trap |
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| Institution: | 1. University of Alaska Anchorage, 3211 Providence Drive, Anchorage AK, 99501, United States;2. Yale School of Forestry & Environmental Studies, 120 Kroon Hall, New Haven CT, 06510, United States;3. McGill University, 805 Sherbrooke St West, Canada;1. Società Italiana per la Storia della Fauna “Giuseppe Altobello” Viale Liegi, 48A, 00198 Rome, Italy;2. Torre Flavia LTER (Long Term Ecological Research) Station, Protected Areas Service, Città Metropolitana di Roma Capitale, via Tiburtina, 691, 00159, Rome, Italy;1. University of Wyoming, Department of Economics and Finance, 1000 E, University Avenue, Laramie, WY 82071, United States;2. Department of Agricultural, Food and Resource Economics, Michigan State University, East Lansing, MI 48824-1039, United States;1. Virginia Institute of Marine Science and Texas A&M University, College Station, TX 77843, USA;2. Clark University, 950 Main St., Worcester, MA, 01610, USA;3. Virginia Institute of Marine Science, College of William & Mary, Gloucester Point, VA 23062, USA;4. Monash University, Australia;5. University of Melbourne, Australia;1. Land Environment Economics & Policy Institute, Department of Economics, University of Exeter, Exeter, EX4 4PU, UK;2. Centre for Social and Economic Research on the Global Environment, School of Environmental Sciences, University of East Anglia, Norwich, NR4 7TJ, UK;3. University of Siena, Department of Political Science and International, Italy;4. Department of Economics and Management, University of Trento, Via Vigilio Inama, 5, 38122, Trento, Italy;1. Eco-environment Protection Research Institute, Shanghai Academy of Agricultural Sciences, Shanghai Key Laboratory of Protected Horticultural Technology, Shanghai 201403, China;2. Ministry of Education Key Laboratory for Biodiversity Science and Ecological Engineering, Institute of Biodiversity Science, Fudan University, Shanghai 200438, China;1. The World Bank, United States;2. Georgetown University, United States |
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| Abstract: | Common pool resources often insure individual livelihoods against the collapse of private endeavors. When endeavors based on private and common pool resources are interconnected, investment in one can put the other at risk. We model Senegalese pastoralists who choose whether to grow crops, a private activity, or raise livestock on common pool pastureland. Livestock can increase the likelihood of locust outbreaks via ecological processes related to grassland degradation. Locust outbreaks damage crops, but not livestock, which are used for savings and insurance. We show the incentive to self-protect (reduce grazing pressure) or self-insure (increase livestock levels) changes with various property rights schemes and levels of ecological detail. If the common pool nature of insurance exacerbates the ecological externality even fully-informed individuals may make risk management decisions that increase the probability of catastrophe, creating an “insurance trap.” |
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| Keywords: | Environmental externality Common pool resources Poverty trap Endogenous risk Q20 Q54 Q57 |
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